PharmaNet Development (NASDAQ:PDGI): Shares are 98% off annual highs; Upgrade to Outperform, $7 tgt - Baird

Baird is out with a pretty interesting upgrade on PharmaNet Development (NASDAQ:PDGI) raising their rating to Outperform with a whopping $7 tgt saying they believe that PDGI is increasingly likely to successfully address the convertible debt-related liquidity concerns by early 2009. While fundamental performance is poor and market trends not fully certain in the near-term, they believe that resolution of bankruptcy risk fears may drive materially higher valuation, despite PDGI's ongoing challenges.

Massive valuation reset. PDGI shares are 98% off annual highs, due partly to unprecedented performance and bookings volatility and abysmal 3Q trends (preannounced 9/11), market-wide and CRO sector pressures. However, the firm believes current price is severely discounted for bankruptcy fears.

Liquidity issues. Before 3Q reporting, PDGI held $52M cash, looked cash flow negative for
2008, substantially slashed guidance on 9/11, and as the shares imploded the global financial crisis heightened and capital markets activity ground to a halt. Not good, given PDGI's $143.75M
in 2.25% convertible notes, which are putable at $41.08 on August 15, 2009.

Believe PDGI can remedy this crisis. PDGI hired advisors to explore 1) cash tender, 2)
xchange offer, and/or 3) open market repurchases, among other options. Baird believes that
ncreased cash position ($63.3M), A/R collection potential ($124M), $14.1M FCF in 3Q, and
growing interest from outside sources and particular importance of this deal to the advisers lends confidence. They see a range of potential solutions, most of which will be highly dilutive, but resolution should lift the shares sharply off the floor.

This is a highly speculative call, and financing resolution wouldn't remedy all of PDGI's issues. Firm slashed future estimates for f/x risk, unique mix and market risk, a poor bookings profile and implied dilution from any financing venue. While they see PDGI earning its current share price in 3-5 years, they applied deeply discounted multiples (7.5x P/E, 5.6x EV/EBITDA, ultra-conservative DCF) to arrive at $7 price targe.

Notablecalls: Well I'll be damed if PDGI doesn't trade towards $2.50 level soon. I think Baird's wording is strong and will generate some speculative interest in PDGI in the n-t.

Energy Conversion (NASDAQ:ENER): Margin pothole in mid-2009; Initiate with Sell, $17 tgt - Citigroup

Citigroup is initiating coverage of Energy Conversion (NASDAQ:ENER) with Sell and $17 target. While the stock is already well off its high, they think it can still go lower as they foresee a big margin "pothole" in mid-2009 against broad expectations of margin expansion. C2009 and C2010 EPS estimates are about 1/2 of the Street, and trading at 18x C2010 EPS estimate, if they are right, the stock still seems to have further downside. F2009 EPS $1.61 (consensus $1.65), F2010 EPS $1.35 (consensus $3.39). $17 target is based on 10x C2010 EPS of $1.71.

Thin film solar — ENER has two primary business: thin-film solar uniquely suited for rooftop installations (specifically building-integrated applications where subsidies in some regions are more favorable), and a materials segment principally focused on commercializing NiMH battery technology.

You can run, but you can’t hide — Citi acknowledges ENER's small scale and niche end market (BIPV) in regions like France + Italy may provide some near- term pricing cover, but those mkts are still not big enough to provide much headroom. Meanwhile, collapsing prices for competing x-Si modules should overtake its pricing umbrella by CQ1:09. These floodwaters should force it to get more aggressive on pricing or curtail capacity expansion. Further, unlike x- Si which may count on cheaper silicon as a margin offset or FSLR who can use scale + profitability to take share, ENER appears to have few near-term offsets.

Notablecalls: This call is going to hurt ENER.

Southern Copper Company (NYSE:PCU): Upgrade to Buy from Sell. High Quality Assets. Strong Balance Sheet - Citigroup (Actionable Call Alert)

Citigroup is out with a big call on Southern Copper Company (NYSE:PCU) upgrading the shares to Buy from Sell, with a $20 price target.

According to Citi, PCU fits their current recommended profile of low cost miners with strong balance sheets. They had listed PCU as a Sell with copper at $3.75/lb given huge downside potential.

This scenario has unfolded ($1.85 copper, PCU down 74% from peak) and upside now outweighs downside.

5 reasons to buy:

#1: The Worst Is Over For Copper — Industry studies suggest that $1.70/lb is the 90th percentile on the copper cost curve, i.e. less than 10% below current prices. This is where copper has settled during previous global recessions.

#2: Structural Shortages Not Resolved — Copper is Citi's preferred base metal given structural supply constraints. The price was $4/lb only six months ago.

#3: High Quality Assets + Good Balance Sheet — PCU has the lowest cost mines and the highest reported reserves of any major copper producer. The company has almost zero net debt with over $1.1b in cash.

#4: Buy Ahead of Strike Settlement, Not After — They cannot predict a timetable for ending the painful strike at PCU’s Cananea mine. Yet, this will eventually boost annualized EPS by 40%+ and is a positive catalyst in waiting.

#5: Low Valuation — PCU trades at 11x 2009 on “trough” copper and strikelimited production. Valuation is 5-7x on estimated mid-cycle EPS of $1.50-2.00, below fair value of 10-12x.

Notablecalls: I'm calling this one Actionable here below $13-$14 level

This call has it all:

- Beaten down stock, yet not your average inst. favorite.

- Low valuation (5-7x on estimated mid-cycle EPS)

- Catalyst ahead (Strike Settlement)

Will trade closer to $14-$15 level today.

PS: Goldman reits their Sell on PCU this morning:

We reiterate our Sell rating and $11 per share 12-month target price on Southern Copper. We have lowered our 2008-2010 EPS to $1.91, $0.68 and $1.12 per share from $1.95, $0.70 and $1.15, respectively to account for 3Q08 results, lowered production in 4Q08 and an increased cost structure despite expectations for an increase in sulfuric acid long term contracts, as power costs in Peru are not expected to abate until 2010. We believe that continued labor unrest in Mexico, softening copper and molybdenum prices and power costs will cap PCU’s stock performance in the near term in spite of the company’s high dividend yield (~5.0%).

NC: This will likley act as a drag. - so you know it's out there.

Thoratec (NASDAQ:THOR): Buy aggressively on any weakness in the stock. $31 target. - Canaccord

Canaccord is out with a very strong defense on Thoratec (NASDAQ:THOR) following a medical device correction (MDC) notifying physicians the percutaneous lead in HM-II may malfunction over time via
wear.

Action. *Buy aggressively on any weakness in the stock. $31 target.

*NOT a recall...clearing the air. *Released Friday post-close, this report has been broadly mistaken as an HM-II recall; which it is NOT. It is instead a notification mandated by FDA making physicians/patients aware the lead, which connects the pump with the external controller, may suffer “wear and fatigue [that] may result in damage that could interrupt pump function, require re-operation to replace the pump and potentially… serious injury or death.” There were only 27 lead failures in 1,972 HM-II implants over five years (five deaths; none caused by the lead).

*Is this “significant” to docs? Will it impact uptake? *After speaking over the weekend with several LVAD surgeons, Canaccord's key takeaways are: 1) every physician said the notice is NOT new news to clinicians, thus would not impact practice patterns at all; if anything they were surprised by the “low” incidence rate (27/1,972); 2) HM-II improves patients’ health so much their activity level increases dramatically (e.g., driving a Harley to work) which increases wear on the lead; 3) these patients are sick and have NO other options; as such lead fatigue is the least of their worries; 4) all of the investigators agreed this issue would have NO impact on the DT trial outcome.

*Weekend due diligence turned out quite bullish – think upside is possible to Q3 (report Thursday), Q4 and 2009 estimates. *Not only did clinicians quell initial concerns that this may adversely impact HM-II uptake, but our surgeon calls also suggested adoption by both transplant and non-transplant hospitals continues at a strong clip.

Notablecalls: Bounce candidate for sure. BofA is also out in defense. Could hit $20 level in a jiffy

PS: Lazard on THOR: Firm notes THOR fell ~50% after hours and they believe it is possible it could fall further on Monday as they believe the current market is not very comfortable with risk."

The Plot To Kidnap Obama...

Notablecalls: So now you know how I feel about the elections

Mosaic (NYSE:MOS): Mosaic Company Extreme Oversold Condition Changing Rating from Sell to Strong Buy with $60 Price Target - SISR

Strategic International Securities Research (SISR) is upgrading Mosaic (NYSE:MOS) to Strong Buy from Sell with a $60 price tgt (from $33). Firm is reversing their Sell rating on the stock to adding it to their recommended list.

Firm notes they are looking for current quarterly earnings to come in at $2.18, and full year estimate of $10.63 on revenues of $16.2 Billion. They believe that there will be a period of readjustment for Mosaic with both price declines and output reduced. Mosaic and the industry however are very effective at holding prices up by reducing output. SISR expects this to be the pattern for the coming months and even year or so as the price of these commodities adjusts to the international condition of a worldwide slowdown. Their projections are that output will be reduced by about 10% with prices declining by 20% to 30% over the next year. Given that price have increased by more than 400% this decline is relative by comparison.

Firm feels that given a historical PE of 12 for the industry their target is rather conservative with consensus currently being at $11.26 for 2009.

It is too early to make an extended forecasts but it is likely that just as on the upside this stock was overvalued, they believe it is currently undervalued.

Notablecalls: I bet most of you have never heard of Strategic International Securities Research (SISR) or their analyst Philip Miller covering Mosaic.

Yet, among the inst. side of the business, SISR carries weight. Why?

Just take a look at their recent track in MOS. They have played it almost perfectly:


These guys don't publish much. But when they do, you better take note.

Whole Foods (NASDAQ:WFMI): Downgraded to Underperform with a $9.50 tgt - Jefferies

Jefferies is out with a pretty significant negative call on Whole Foods (NASDAQ:WFMI) lowering their tgt to Underperform from Buy while lowering their tgt to $9.50 from $23.

The macro climate, always the greatest risk with WFMI, has worsened measurably in the five weeks since the firm launched coverage and now looks to be overwhelming the company's ability to drive even flat comps in 4Q08 and FY09. They have lowered their estimates, accordingly, as increased reliance on the macros (~50% correlation with employment) and near total lack of visibility on consumer spending or WFMI's demand elasticity leave them unable to recommend ownership of the shares.

Jeffco has lowered FY09 EPS estimate to $0.85, their prior worst-case scenario. They now forecast FY09 comps of -2.3% and 9 bps of margin contraction on related de-leveraging as they anticipate a steep fall off in spending by Whole Foods' consumers who are under mounting pressure from declining asset prices and falling disposable income.

The company's balance sheet is a growing concern, especially in the near term. Whole Foods had $25 million in cash-on-hand and approximately $135 million in availability on its credit lines as of 3Q. Firm notes they are unable to predict with accuracy the ability of Whole Foods to raise cash or reduce capital spending (lease adjustments/cancellations, supplier support etc.), but the issue, especially in a highly unsettled market and with no assurance from the company, is enough to make them negative on the stock, especially in the near-term.

Notablecalls: Jeffco's $9.50 tgt is bound to generate heavy selling interest in the name, I suspect.

I see the stock down 10%+ today.

Citigroup (NYSE:C): This is going to hurt

Hearing Goldman Sachs has reinstated coverage on Citigroup (NYSE:C) with a $11 tgt within 6 months; Also added to Conviction Sell list.

Notablecalls: This is going to hurt C

Mosaic (NYSE:MOS): Cargill Standstill Expires Wednesday October 22. Mosaic Buyout in the Offing? (Actionable Call Alert!)

Soleil's Gulley & Associates is out with a noteworthy call on Mosaic (NYSE:MOS) noting that Cargill's four-year standstill re Mosaic expires this Wednesday. The expiration sets up the possibility that Cargill could accept the gift that "Mr. Market" is presenting: accretively
increasing its ownership stake in Mosaic.

How accretive? Buyout of the 35% minority stake could boost Cargill earnings by more than 20%, given the fact that Mosaic is currently trading at just 2.7x consensus calendar 2009E EPS of $12.25.

Knowledgeable buyer. Given Cargill's extensive knowledge of the global grain markets, any action it takes with respect to its Mosaic ownership position will be closely watched. Cargill is a leading global grain processor and one of the largest private companies in the U.S., with F2008 sales of $120 billion and net income of $4 billion.

Mosaic shares are down 80% from the mid-June peak of $163, during which time the S&P 500 is down 30%. With Mosaic's equity market cap of just $15 billion, down from the peak of $72 billion, the 35% owned by the public is currently worth just $5 billion, down from the peak of $25 billion.

Mosaic currently accounts for roughly half of Cargill earnings:
- Cargill reported 1QF09 net profit of $1.5 billion
- Mosaic reported 1QF09 net earnings of $1.2 billion; 65% of which is $0.8 billion, approximately half of Cargill's $1.5 billion.

Quoting from Mosaic's F2008 10-K filing filed July 29, 2008:
"Standstill provisions in our Investor Rights Agreement with Cargill restrict Cargill from acquiring additional shares of our common stock from our public stockholders and taking other specified actions as a stockholder of Mosaic. These restrictions will expire on October 22, 2008. Following the expiration of the standstill period, Cargill will be free to increase its ownership interest in our common stock."

With Mosaic currently trading at a P/E of just 2.7x, Cargill's buyout of the minority interest it
doesn't own should be highly accretive to its net earnings. Firm ran twocases, at $50 and $82.5 per Mosaic share.

Maintains Buy and $127 tgt on MOS.

Notablecalls: This call sets up MOS as a short-term Actionable Call. I think the Cargill (65% owner of MOS) thing has gone unnoticed by the market here and will be in the spotlight as the standstill expires this week.

I think the stock could trade towards the $40 level as soon as today (with a little help from the market). I really think this comment can produce an explosive move in MOS this week as words starts spreading. Would be an ideal reason or a way to put some fire under the shorts.

Sunpower (NASDAQ:SPWRA): Downgraded at Citi and Merrill Lynch

Sunpower (NASDAQ:SPWRA) has some nasty comments from several tier-1 firms:

- Citigroup notes that following through on their call into what they thought would be the last good Q before big risk develops, they are downgrading SPWRA from Hold to Sell taking advantage of ~25% move post-earnings. The Street is already negative on this sector (firm highlighted ’09 supply shock back in May ’08), but this is a 100% stock-specific call. The bottom line here is that they think a big miss is coming in CQ1 as classic signs of inventory risk are developing in its components biz, while CQ4 should represent a multi-year peak in its margin structure. With respect to liquidity, it has access to cheap money through a term-loan but will continue to skate on thin ice as it looks unlikely to generate FCF through C2010. Risks to the call include potential for SPWRA to self-finance projects very near-term, which could mute some channel risk (albeit w/other ramifications). F09 (GAAP) from $2.29 to $1.92, F10 from $3.06 to $2.60. Target $55 to $30 on lower multiple on GAAP EPS.

- Merrill Lynch downgrades the stock to Neutral from Buy and are lowering their PO to $55 from $95, primarily on demand concerns in the U.S. residential solar market. They continue to think SPWR is one of the best positioned solar companies; however it’s difficult to ignore the current macroeconomic environment and the pressures it will put on consumer spending on capital intensive projects like solar. Firm's new PO reflects a 20x multiple on their ‘09 non-GAAP EPS (including options) and is supported by their return on operating capital model.

Though the ITC extension was a major milestone for the solar industry that should drive growth in the U.S. over the coming years, the firm is increasingly cautious on near-term residential solar demand given weakening economic and employment trends, falling home prices, and tightening credit. Sunpower has about 1/3rd exposure to the residential solar market and ~25% exposure to the U.S., which could put estimates at risk.

Sunpower’s component business exceeded expectations on both revenues and margins. Likewise, the company’s 4Q component business outlook was better than management’s prior forecast. However, the firm wonders how much of this is inventory stocking at dealers versus actual sell through given their concerns about residential related solar demand, particularly in the U.S.

- Goldman Sachs is lowering SPWRA tgt to $36 this morning.

Notablecalls: Citi's comments regarding a 'big miss' coming will kill the stock today. Short interest stands close to 40% so the action will be choppy.

Archer-Daniels-Midland (NYSE:ADM): Actionable Call Alert

- Merrill Lynch is upgrading Archer-Daniels-Midland (NYSE:ADM) to Buy from Neutral noting the recent ~40% correction in commodity prices has lowered ADM’s working capital needs and improved the company’s cash flow significantly. This improvement in cash flow has also allowed ADM to repay all the commercial paper ($2.2 billion) it had outstanding at fiscal year end (June). Firm expects commodity prices to continue to moderate, which should strengthen ADM’s balance sheet further.

Raising F2009 EPS estimate on LIFO gains: As crop prices rallied over the past few years, ADM’s earnings have been negatively impacted with nearly $800 million ($0.83 per share) in LIFO charges. With crop prices retreating, they are now estimating a sizable LIFO gain in F2009— $0.32 per share vs. previous $0.05 per share estimate.

Share repurchase possible given cash position: Given that ADM had roughly $2.8 billion in cash and cash equivalents on its balance sheet at F2008 year end (or approximately 25% of its current market cap), and considering the sell off in the stock over the last few months, the firm thinks the company will come under increasing pressure to repurchase shares. They would expect some movement on this front once the company has wrapped up its annual meetings with the rating agencies—scheduled to take place this month.

Notablecalls: I like this call.

- The shares have traded down ~60% over the last 6 months on a combination of factors, including: grain spikes early in the summer following widespread flooding in the Corn Belt; concerns about sustainability of earnings in the near term; concerns regarding demand destruction from higher crop prices, and more recently, concerns regarding the company’s balance sheet and its financial flexibility (MLCO comment)

The end-demand is still there, especially with prices now down. ADM stock has gotten hit along with the AG space but it's quite clear they stand to benefit from lower prices as the are merely processors.

- It's cheap, trading just 6.5x FY09 EPS estimate. Especially with MLCO upping their ests due to LIFO. Free Cash Flow yield stands at a whopping 30%+. Roughly 25% of their mkt cap is cash, so there are NO liquidity issues.

- ADM has managed to repay all the commercial paper ($2.2 billion).

- Catalysts ahead. Not huge ones but it would be nice to see ADM buying back stock here.

ADM's just so much better than the Ferts.

I suspect the stock will trade toward the $18 level today.

eBay (NASDAQ:EBAY): Merrill Lynch downgrades to Sell

Two firms quite negative on eBay (NASDAQ:EBAY) this morning:

- Merrill Lynch is downgrading ebay (NASDAQ:EBAY) from Neutral to Underperform with PO of $19 due to company specific issues and market share losses. They would expect eBay to Underperform the group if the sector rebounds. While their $1.87 EPS for ‘09 is only modestly below consensus at $1.90, with GMV on the threshold of declining, eBay faces an increasing need to restructure the high margin marketplace to drive growth given ongoing slowdown in transactions. A further restructuring of seller fees to attract larger sellers, or a tech. upgrade to better compete with other platforms (AMZN) could drive marketplace margins lower than current estimates. They don’t expect positive 3Q results or 4Q guidance.

- Deutsche Bank notes that while the good news last week was that eBay reaffirmed 3Q guidance (revs of $2.1-$2.15bnn; EPS of $0.39-$0.41), they think the bad news this week may be that the underlying metrics for 3Q and 4Q guidance may be a bit disappointing (owing to a consumer spending slowdown, forex headwinds and structural challenges). Simply put, they think ests could move lower in coming quarters, especially as recent seller checks indicate declining GMV activity. Hence, the firm reiterates their SELL investment rating, and believes that recent value-buyer interest may be a bit premature.

Notablecalls: I suspect EBAY will trade closer to $16 level today. MLCO negative call just ahead of the earnings release is pretty gutsy and usually works.

EBAY's a short above $17.

Apple (NASDAQ:AAPL): Upgraded to Overweight at JP Morgan

JP Morgan is upgrading Apple (NASDAQ:AAPL) to Overweight from Neutral. Apple’s model is far more diverse than previous vintages, and they think the staying power has been underappreciated. With its market share momentum likely intact, Apple in firm's view offers strong relative downside protection to the looming earnings reset that they expect to impact IT Hardware companies in coming weeks and again early next year.

- Diverse model provides staying power. There has been considerable investor concern lately over the Apple model losing steam, particularly if the consumer vertical rolls over. JPM estimates that the company’s total model exposure is about 70-75% consumer, but they think that Apple’s brand and market share momentum offer meaningful buffers to potential macro-driven pressures on the consumer.

- Retail expansion could sustain share gains and international momentum. JPM thinks a major force behind Apple’s growth story will be its diversifying revenue streams. They expect Apple’s penetration of the international markets to be measured in years and supported by the increasing build-out of the retail stores overseas.

- iPhone could lead to the enterprise or other content-rich devices. Firm thinks the iPhone could be a stepping stone to penetrating the enterprise. Also, they could envision the iPhone pushing Apple deeper into the set-top box market as the convergence of voice, web, data, and content continues.

- Expect numbers to come down across the sector, but Apple likely has a backstop beyond the first round. For Apple, they are revising their below-consensus revenue and EPS estimates. Looking to fiscal 2009, revenue and EPS estimates are $36.98 billion and $5.27, versus the Street consensus of $40.26 billion and $6.02.

- Apple trades at 18.8x JPM's calendar 2009 EPS estimate, versus the peer group average of 11.1x. With macro pressures showing no signs of dissipating, they believe it is time to play defense, and they think Apple can avoid having a major problem with the “E” in the price-to-earnings multiple moving through the coming year. Firm expects the company’s model to limit a series of major earnings cuts from unfolding in coming quarters, and they think this should support a valuation gap in Apple’s favor.

Notablecalls: Another valuation call. Things will be bad but Apple will be less bad than others. Does that really convince anyone?

Note that JPM is also upgrading IBM to Overweight with DELL, LXK and NTAP getting their ratings slashed.

Visa (NYSE:V): Upgraded at Piper and Morgan Keegan

Two firms are upgrading Visa (NYSE:V) today:

- Piper Jaffray upgrades V to Buy saying they believe this very high-quality franchise should be oninvestors' short list of stocks to own through this economic cycle. Firm is comfortable with Visa's earnings power through this cycle and over the long-term, despite financial/economic uncertainty in the markets and dollar strength; Visa's intrinsic value will continue to grow at a very attractive rate for many years to come.

Pullback in the share price, even with yesterday's recovery, has greatly improved the risk/reward, in our view, creating an attractive entry point for long-term investors; shares trading at 21x calendar '09 est. of $2.76.

Buffers against economic slowdown: debit (35% of pay. vol), non-U.S. & non-Europe pay. vol, new products, margin expansion on scale, op. leverage. Reducing fiscal '09/'10 EPS estimates from $2.77/$3.26 to $2.66/$3.22 on slower payments volume growth forecast.

Tgt is lowered to $72 from $81.

- Morgan Keegan upgrades V to Outperform noting the shares are down (36%) from highs on concern over economic sensitivity and technical selling pressures; Street 2009 op. EPS Consensus of $2.77 likely to be lower over coming weeks & technical factors could continue to weigh on stock.

They are modestly lowering 2008 & 2009 op. EPS to $2.19 (vs. $2.20 prev.) and $2.68 (vs. $2.76 prev.), factoring in softer global economic environment, currency headwinds, offset by positive pricing, and cost controls

Shares attractively valued at under 21x CY:09 op. EPS; Despite likelihood that US volumes have not yet bottomed & sequential card growth to remain negative in near-term – Morgan Keegan believes the long-term franchise value is highly attractive at current levels;

Notablecalls: Both are valuation calls. I see the stock hitting $62-63 today on these upgrades, if market holds up OK. Note that MoKe is upgrading MA as well on valuation basis.

Sovereign Bancorp (NYSE:SOV): Could a Deal with Santander be Imminent? - MSCO

Morgan Stanley has some interesting comments on Sovereign Bancorp (NYSE:SOV) noting the co is in late-stage talks topotentially be acquired by Banco Santander (already a 24.9% owner of SOV), according to an article published by the Wall Street Journal late Sunday evening. According to the WSJ, a deal could be announced as early as Monday with a deal price of roughly where SOV shares closed on Friday at $3.81. Neither company has commented on the potential transaction.

Selling out at the wrong time for the wrong price?

Firm's initial reaction is that they would be quite surprised if Sovereign management were to sell the company at the current stock price. Friday’s closing price is just 58% of its estimated 3Q08 tangible book value per share of $6.61, and well below where the overall midcap bank group is trading at 1.6x. Their view is that after disclosing and writing-off its poor-performing GSE and CDO investments, the company had put its most pressing problems behind it. Unless the company has not disclosed a material adverse item (which is possible), they see little reason why the stock should be trading substantially below its tangible book value.

Potential Treasury actions a near-term positive: In addition, if the Treasury were to announce a plan to guarantee bank deposits and liabilities through preferred equity, as suggested by MSCO chief US economist, in an effort to restore confidence in the US banking system, SOV’s closing price on Friday may prove to be much too low. Any improvement in confidence in the banking system could indirectly result in a much higher equity valuation for the SOV shares.

Reits Overweight, $9 tgt.

Notablecalls: Just fyi - not making a call ahead of a potential announcement.

Amusing:

10/10/02 - low in SPX and end of tech bear mkt
10/10/07 - all time high in SPX
10/10/08 - today

Apple (NASDAQ:AAPL): Another Bite of the Apple - BMO Capital

BMO Capital is out cautious on Apple (NASDAQ:AAPL) having recently visited or spoken with sales reps at 32 Apple and 30 AT&T stores in various parts of the US and the UK. Apple is not escaping the gravity of weakening consumer spending, in firm's view.

Negative – for the first time in years, store reps are indicating sales have slowed, in CPUs in particular. While the data was not universal, about onethird of sales reps they spoke with noticed some slowing, which is a significant change from past checks. Conversations with AT&T sales reps indicated no recent change in iPhone run rates, but the firm has elected to cut their FY2009 iPhone forecast nonetheless.

In recent visits to 32 stores across the country, 11 indicated that sales had slowed in the past 30 days, while 20 indicated that sales had stayed about the same, and one indicated that sales had improved. While store checks might not seem that negative, over the past five years of checking Apple stores, wthey have received consistently steady and/or improving sales comments. This is the first time they have heard store reps describe slowing sales since Apple began its stock run five years ago. In addition research provided by ChangeWave Research indicate slowing sales.

How Might Apple Guide for the Dec Q?

The question is not if Apple will guide below Street estimates, but how far will Apple guide
below Street estimates. For example, for the September quarter, the firm suggested that Apple would guide to $1.00 when Street estimates were approximately $1.30 – too great of a delta, and the stock sold off. For this quarter, with the inclusion of significant deferred revenues, they believe estimating quarterly guidance is more difficult.

BMO's analysis suggests that Apple would guide to around $10.0 billion in revenue vs. the Street at $10.8 billion and their $10.1 billion estimate. They also believe that Apple will guide EPS in the range of $1.45-$1.50, compared with current Street estimates of $1.71 and their $1.60.

Maintains Outperform on AAPL due to stock’s recent decline relative to their target price of $120.

Notablecalls: Not making a call here but letting you know it's out there.

Reluctant

I'm reluctant to put out any calls on the page in this environment. Don't think analyst calls get much attention.

NC

Early Morning Tid-bits:

- Goldman Sachs downgrades First Solar (NASDAQ:FSLR) to Sell and adds to their Conviction Sell List

NC: The stock will get hit today in a major way. There is little support for FSLR in this mkt. I would not be surprised to see the stock hit par in the coming months. Note that SPWR gets the boot from GSCO as well. Piper lowers FSLR tgt to $250 from $350.

- Morgan Stanley reits Overweight and $175 tgt on Monsanto (NYSE:MON) noting soft commodity price bearsare lurking around the wrong stock. While they do not foresee a $3 bushel of corn, the firm notes they have always modeled Monsanto's pricing power as if the farmer was only going to realize $3 corn (and $8 soybeans). The market appears to have a dispositive view (i.e., expecting $3 corn and for it to result in demand destruction for Monsanto’s products)

Firm believes that farmers will earn a 72% ROIC on the triple stack in F09 at $3 corn (and would still earn a 45% ROIC at $2 corn) and therefore see little risk of demand destruction should new crop corn prices decline further from their present position.

NC: I think MON should be on your bounce radar today.

- FBR is upgrading Freeport-McMoRan Copper & Gold, Inc. (NSYE:FCX) to Outperform with a $85 tgt with a view that the stock is oversold and that the risk/reward is now compelling. Valuation multiples have contracted significantly, and free cash generation is strong even if copper prices were to contract further.

NC: This is a major call in my opinion. When was the last time you saw this one upgraded? FBR has been skittish on the space for quite a while. FCX is trading around 5x 2008/2009 EPS. This one could reach $48-$50 level in a jiffy.

- RBC Capital is out with some positive comments on Research in Motion (NASDAQ:RIMM) saying the BlackBerry 9530 Storm, RIM's first widescreen/touchscreen Smartphone, is expected to be announced this week (possibly Wednesday in London) in a joint Verizon/Vodafone/RIM press conference. Launch still expected 1st week November; they expect 850k Storms shipped Q3/Q4, and 3-4M units FTM. Exclusively at Verizon/Vodafone (who do not carry the iPhone), Storm may be aggressively marketed by these carriers and RIM into the holidays.

Maintains Sector Perform and $90 tgt.

NC: I think you should add RIMM to your bounce list. The stock acted very nicely yesterday. We may get some follow-through today.


Hope it helps,

NC

Research in Motion (NASDAQ:RIMM): Deutsche Bank lowers tgt to $50 from $70

Deutsche Bank is lowering their price target on Research in Motion (NASDAQ:RIMM) from $70 to $50 on concerns that the Bold will not ship on time at AT&T, causing RIM to possibly miss its quarter. The transition to a consumer-facing company has proven more challenging for RIM than expected. Pricing and margins are likely to remain volatile, meriting a Sell rating.

Firm thinks AT&T is unlikely to finish testing the new 3G Blackberry before the end of October, which makes it likely that the Bold will not ship until November, later than the company expects. While the Storm seems to be shipping on time at Verizon, they do not expect it to be readily available until mid-November and it is unlikely to be sufficient to offset the delay in the Bold. This raises the probability, in firm's opinion, that RIM will miss their November quarter guidance.

They thinks RIM may have bitten off more than it can chew. The company is pushing up against its limits in developing a 3G stack and other software for its new devices. The shift to a consumer-centric model has also eroded gross margins, increased ad expense and leaves the company further exposed to product cycles.

Notablecalls: Ouch. Just letting you know it's out there.

Mosaic (NYSE:MOS): Bounce?

Several tier-1 firms defending Mosaic (NYSE:MOS) following results announced last night:

- Morgan Stanley notes the "miss” relative to expectations came on the COGS line, as Mosaic's revenue came in above our expectations despite lower than anticipated volume. Not surprisingly given the widely reported $100 decline in DAP prices over the past month (i.e., trade magazines have been reporting prices around $1,00 per tonne for several weeks now), Mosaic is choosing to protect price by reducing DAP production during what it believes will be a limited period of demand softness. Morgan Stanley expects this move to shore up recent DAP price weakness and continues to note that on a go forward basis lower sulfur production costs are largely offsetting the current reduction in DAP prices. Importantly, potash results were inline with firm's expectation and the company made no alterations to its potash production expectation. Finally, given the global economic environment, what should not be lost in all of this is that Mosaic now has ~$700 million of net cash - a substantial cushion that makes it more than capable of matching supply with demand to protect price.

Given the present equity market environment, investors will likely be overly disturbed by the "miss" and cast a more skeptical eye on the production cut (i.e., will it be enough to maintain status quo DAP price levels?). That said, with Mosaic shares trading down ~20% in the post-market to $55 per share, they believe that a near-worst case scenario is now priced in for the balance of F2009.

Maintains Overweight and $155 tgt

- Citigroup maintains their Buy and $150 tgt noting that combining the macro environment and guidance cut, MOS shares are likely to trade-off today, but farmer economics indicate underlying farm demand for fertilizers should remain strong over the full application season. In firm's opinion, the market will have a difficult time focusing on the expanding margins until phosphate prices stabilize, which is why they view the production curtailments as a positive, since this should shorten the inventory adjustment period and tighten the market for calendar 2009;

Notablecalls: I think MOS represents a bounce candidate for today. Note management conf call started today at 11:00 AM ET - suspect they will do their best to soften the hit.

Looking to buy in the $56-$59 range.


UPDATE: Merrill Lynch downgrades the Ferts:

Cheap stocks likely to get cheaper – downgrading fertilizers We continue to believe that low global grain inventories will create a favorable multi-year demand environment for input providers and that it will take several years for significant new capacity to come on line. While the stocks remain inexpensive they appear to be driven more by price and earnings momentum than by valuation. With phosphate prices falling, nitrogen prices peaking and potash prices rising less than expected there is considerable uncertainty surrounding the near-term earnings outlook as underscored by Mosaic’s earnings miss and downward guidance. The near-term fertilizer demand outlook has become more uncertain as the recent decline in corn prices has reduced the margin advantage over less fertilizer intensive soybeans. We are reducing our ratings from Buy to Underperform on Mosaic, Potash Corp., Agrium, Intrepid, CF, and Terra.

NC: I continue to view the space as a bounce play here. MLCO call is more of a sentiment call than based on any data. Takes a special (didn't say retarded!) person to downgrade a stock following a downside move of $160 -> $55.

Hartford’s (NYSE:HIG): Capital Concerns Look Significantly Overdone - Morgan Stanley

Morgan Stanley recommends investors take advantage of what they believe is unwarranted
pressure on Hartford’s (NYSE:HIG) stock reflecting escalating concerns over the company’s capital adequacy.

While there is little doubt the company has taken some substantial hits this quarter, they still arrive at the conclusion that its capital position is more than adequate to support its ratings.

Even if we were to see further market deterioration, driving the need for incremental capital, MSCO's bear-case would still suggest substantial upside in the stock from present levels.

Capital Concerns Appear Overblown… The outlook for Hartford’s financial strength ratings were reduced to negative from stable at Fitch, which triggered concerns among investors over whether it has sufficient capital. Analysis leads the firm to the conclusion that these concerns are largely unwarranted, with other companies such as Principal and Genworth, even Lincoln, likely to face capital challenges before Hartford.

Valuation now looks Compelling: Hartford is facing highly challenging credit and equity market conditions, which is leading the firm to reduce estimates for both 2008 and 2009. However, even after taking a conservative view on the fundamental outlook, the valuation looks compelling, trading at just 4.7 times 2009 estimate and 75% of Y/E 2009 expected reported book. To justify where the stock is presently trading, they estimate it would need to raise $7.0 billion of equity at price of $30, which illustrates just how far the stock is now trading away from view of its intrinsic value.

What’s next: Firm expects management will provide an update to investors on its capital position through a press release in the coming days. Beyond that, earnings are due to be released on October 29.

Notablecalls: Worth a bounce, no?

TARP Update -- Humpty Dumpty Is Dusting Himself Off - Keefe

Keefe Bruyette notes Tuesday was a relative quiet day in Washington but initial indications seem to confirm their belief contained in Tuesday morning's note that they believe that Congress will try to resuscitate the TARP later this week.

Negotiations on resurrecting the TARP were low key on Tuesday. However, the consistent theme of comments throughout the day was that Congress would try to bring the TARP bill back for another vote.

The pace of negotiations will likely pick up on Wednesday. One item that seems to have some traction and that may get added to the bill is increasing the deposit insurance cap from $100,000 to $250,000. That should make the bill more popular with several members as this idea is seen as a protection for Main Street. Both presidential candidates support the idea.

Businesses that could be affected if the credit markets continue to seize up have become more engaged and are pushing members who voted "no" to support the plan if it comes up for another vote. This is a very important move as it changes the focus of the TARP from a bailout of Wall Street to that of economic stabilization for the entire country and should help give political cover to members of Congress who have been wary of being seen as bailing out Wall Street.

There are also reports that phone calls to congressional offices in support of the plan picked up after the vote failed on Monday.

They think a vote on Thursday in the House is a little optimistic and even Friday is a stretch. They think it is more likely that a vote will come over the weekend or on Monday.

Notablecalls: Fyi